Question

Kaleb, Inc. mistakenly reported its expenses of $56,673 on the cash basis.

Corporate records revealed the following information:

Beginning prepaid expense	1,546
Beginning accrued expense	1,677
Ending prepaid expense	1,834
Ending accrued expense	1,292

What amount of expense should the Kaleb company report on its books under the accrual basis?

$34,250

$43,250

$56,000

$56,131

$57,000

$57,346

Answer 1

Accrual basis reflect expenses incurred during the period while cash basis reflect expenses actually paid during the year in cash.

Expense on Cash basis i.e. Expense paid during the year = $56,673

Less: Increase in prepaid expenses i.e. expenses paid for next period = $1,834-$1,546 = $288

Less: Decrease in Accrued Expenses i.e. expenses paid of earlier period = $1,677-$1,292 = $385

Expense under accrual basis = $56,000

Hence, Kaleb company should report $56,000 on its books under the accrual basis.